How Do You Eat An Elephant?

Published on December 6th, 2019

How do you eat an Elephant?

(No elephants were harmed in the writing of this column)

By David Lukas, Leyden Credit Union President and CEO

The answer is one bite at a time.  Trying to get your finances in order may seem as impossible of a task as finishing off the elephant.  You tackle that problem the same way, one step at a time.  In my opinion, the best way to start getting a handle on your finances is to start tracking your expenses.  It’s the part of your financial equation that you have the most control over. 

Everyone has expenses that are necessary, such as food, shelter, clothing, transportation, etc.  You do have to spend money on these items, but you have the choice on how you spend it.  Make your choices and choose wisely.  When it comes to non-essential expenses, you have to be even more careful about how you spend because hobbies, entertainment, and vices are in this category and it can be even more difficult to be disciplined by spending within your means.  You should also add one additional expense here if you aren’t already doing so: pay yourself, even if it’s something small like $5 or $10 a paycheck.  Just so you get in the habit of setting something aside for yourself for an emergency fund.  In addition to paying yourself now, think about your future self and start trying to put some money away for retirement.  Time is both your best friend and worst enemy when it comes to saving for retirement.  The younger you are when you start saving, the more time you have to grow your nest egg.  The longer you wait, the less time that compounding can work for you and the less time your nest egg can grow.

Once you’ve got a handle on how much you’re spending each month and you’ve made any appropriate changes to your spending habits, it’s time to look at your income.  Income for most people is finite and predetermined by your wages/salary.  However, in today’s economy, there are increasingly new ways to work for yourself on the side to earn some extra income.  Total up your monthly income and compare it to your monthly expenses.  Don’t forget to figure in expenses that pop up less frequently than monthly and assign a monthly amount to that expense (i.e., insurance, taxes, tuition).  If you’re in the black and have more income than expenses, you’re off to a good start.  If your expenses are more than your income, then you have to go back and see what expenses you can cut or how you can make more economical choices of expenses that you can’t cut.

The next step is to start paying off any debt that you have accumulated by using the extra funds that you’ve freed up by shaving your expenses.  You’re most likely not bound to paying only the minimum or contractual payment on your debt.  If you can pay more, do so!  There are almost no debt options available to you that have lower rates than saving rates available to you.  So, if you make extra payments to a 15% to 20% credit card, you are saving yourself from having to pay that rate on your debt.  When your savings choices are under 1%, paying down the high percentage debt is the best use of your funds.

Depending on your starting point, getting your finances in order can be a huge undertaking.  But like that elephant, if you take it one bite (or step) at a time, you CAN improve your position.  It may not be quick or easy, but if you stay disciplined and continue to look for ways to cut down on your spending, pay down your debt, set up your emergency fund, and put money away for your retirement, your financial life will improve. 

If you have any comments or questions, please write me at david.lukas@leydencu.org.

 

 

 


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